You just graduated from school and accepted your first job in the real world.
Congratulations!
This is a massive accomplishment and likely something you have been dedicating years to achieve. What you do next can mean a world of difference for the rest of your life.
Here are my five most important boxes you need to make sure you have checked to financially prepare for life after college.
#1 Understand the Benefits Offered to You by Your Employer
Employers love to brag about their benefits. Benefits alone can be a large factor for new employees deciding where to work. Yet so many employees don’t take full advantage of what is offered to them.
When the HR department sends you the employee handbook, it seems like quite the undertaking: so many pages, so much “fine print” text, so many decisions to make.
Don’t let it overwhelm you. Take 30 minutes to read and understand what is offered. You don’t need to sign up for everything, but it’s important that you understand what you are and are not signing up for and why.
When looking through your handbook, look for benefits such as those mentioned in this article.
Google – and your financial advisor – are your best friends here.
#2 Create the Simplest Budget Ever
Many are terrified of that ‘b’ word. Don’t be.
Creating a budget is not constraining; it’s LIBERATING! After completing your very basic budget, you now know the amount of “play money” you can spend each paycheck or each month without worrying about putting yourself into a financial hole.
It’s simple.
Here’s how to do it, step-by-step.
- Write out your gross pay, each deduction, and find out your net pay – the amount that hits your bank account each paycheck.
- Write out your fixed expenses. These are expenses you know FOR SURE are coming every single month. Fixed expenses include your rent/mortgage, subscriptions, insurance premiums, etc. I also encourage writing out variable expenses to have ballpark estimates. These will include groceries, gas, the electric bill, and more.
- Subtract the total of fixed and variable expenses from your monthly pay. Here is your monthly surplus. If it’s not a surplus, make it a surplus. The easiest way to do that is to cut expenses, but earning more money always helps, too.
- This surplus represents your fun money for the month. Enjoy it!
Track that surplus amount for the first 2-3 months. Are you finding your surplus is larger than it needs to be and you have extra money sitting in your checking account? What a nice problem to have! Consider increasing the amount of money you are saving for investments or donating to a cause you’re passionate about.
A budget is meant to be a guideline, not a set-in-stone death sentence. Modify as needed.
#3 Your First Money Goal Should be an Adequate Emergency Fund
No one likes watching the cash in their bank account do nothing. But then an emergency strikes, you desperately need cash today, and your money is in an investment that is down 25% over the past month.
Not an ideal place to be in. Take it from me: I’ve seen people in this predicament, and it can be one of the most helpless places to be in. Avoid it like the plague. Make this goal your top savings priority, meaning every extra savings dollar goes into filling this bucket first.
Your savings account should be in US Dollars. That pains me to say as a Bitcoin maximalist and dollar minimalist, but it’s the best move to make for beginners that may not have much investment experience.
Ideally the amount you keep in the e-fund ranges from three to twelve months’ worth of expenses. Rarely do I ever recommend keeping an entire year’s worth of expenses in cash. Personally, I keep three months of expenses in dollars and not a penny more.
Keep your emergency fund liquid in a checking/savings account at a bank or in cold hard cash in a safe spot. Save it for a rainy day. You will sleep better at night knowing it’s there.
#4 Own Equity
What is one thing all rich people have in common? They all own equity in their endeavors.
Owning equity is paramount to financial freedom.
The tradeoff in financial markets between risk and reward is an extremely important lesson to learn. The more risk you are willing to take on in markets, the more reward you should demand to compensate for it.
Equity is viewed as “riskier” than debt. An equity represents ownership in a company. A debt instrument represents a claim on a company’s assets.
To break it down simply, think of equity as stocks and debt as bonds.
If possible, attempt to own equity in the company you work for, whether it’s a startup or in the S&P 500. Bet on your company because it’s also a bet in yourself.
Own equity via the stock market. Using the S&P 500 as a gauge, owning stocks for a long timeframe has tended to be a wise investment. There will be twists, turns, dips and downturns. But the idea is that you will be rewarded in the end owning companies that you know and use every day. Own equity in your home. Home ownership can be difficult today with record-high prices and increasingly high interest rates. This is a goal you can build towards. I advocate for home ownership rather than renting so you can have adequate space for a family, and you can take pride in knowing your home is yours.
#5 Have the “Money Talk” with Your Significant Other BEFORE You Get Engaged
41% of divorces in the United States stem from money problems. No matter how much you love your partner, financial issues can break a relationship.
It’s important to understand each other’s spending and saving goals and habits. Work together on this. There will be push and pull. Compromises will need to be made. But these compromises could potentially save your relationship down the road. Do not take it lightly.
Run through your budgets together. Agree to a savings rate goal and understand each other’s expenses.
Just like the budgeting process, being on the same page financially as your partner is liberating, not constraining.
Conclusion
Before you do anything else financially, make sure you have these five boxes checked first. This will lay your financial foundation on the road to financial independence.
Contact a representative at Watchdog Capital for extra guidance.
Enjoy the process!
Trent is a CERTIFIED FINANCIAL PLANNER™ at Watchdog Capital. He has a passion for traditional finance and Bitcoin, and is eager to see how the two worlds interact with each other.